Consumer Law Round-Up

Last week the en banc Ninth Circuit unanimously struck down San Francisco’s ordinance requiring warnings on ads for certain sugary beverages as a violation of the First Amendment. In American Beverage Ass’n v. City and County of San Francisco, No. 16-16072, the court held that the Ordinance is an “unjustified or unduly burdensome disclosure requirement[] [that] might offend the First Amendment by chilling protected commercial speech.” Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 651 (1985). (Jenner & Block filed an amicus brief in the case, on behalf of the Retail Litigation Center.)

Four of the eleven judges who participated joined three special concurrences, however, explaining why they believed the majority had erred even though it reached the right result. Those three concurrences highlight a number of issues related to commercial speech for courts to address in the wake of the Supreme Court’s decision in National Institute of Family & Life Advocates v. Becerra (NIFLA), 138 S. Ct. 2361 (2018).

San Francisco’s “Sugar-Sweetened Beverage” Ordinance

The American Beverage Association v. City and County of San Francisco centers on a 2015 ordinance that required ads for certain “Sugar-Sweetened Beverages” to include the following: “WARNING: Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay. This is a message from the City and County of San Francisco.” Slip op. 8.

“Sugar-Sweetened Beverages” were defined as “any Nonalcoholic Beverage sold for human consumption, including, without limitation, beverages produced from Concentrate, that has one or more added Caloric Sweeteners and contains more than 25 calories per 12 ounces of beverage.” Id. at 9. The definition did not include “drinks such as milk, plant-based milk alternatives, natural fruit and vegetable juices, infant formulas, and supplements.” Id.

The warning, which was required to take up 20% of the ad space, was mandated on “any advertisement, including, without limitation, any logo, that identifies, promotes, or markets a Sugar-Sweetened Beverage for sale or use that is any of the following: (a) on paper, poster, or a billboard; (b) in or on a stadium, arena, transit shelter, or any other structure; (c) in or on a bus, car, train, pedicab, or any other vehicle; or (d) on a wall, or any other surface or material.” Id. The warning was not required on: “periodicals; television; electronic media; SSB containers or packaging; menus; shelf tags; vehicles used by those in the business of manufacturing, selling, or distributing SSBs; or logos that occupy an area of less than 36 square inches.” Id.

Plaintiffs challenged the ordinance, arguing that it was misleading, placed an undue burden on commercial speech, and was not rationally related to a substantial government interest. Id. at 10. The district court rejected the challenge and denied a preliminary injunction. A panel of the Ninth Circuit reversed. Then the full court agreed to hear the case en banc. Id. at 10-11.

The En Banc Court Unanimously Holds That The Ordinance Is An Undue Burden On Commercial Speech.

In a decision by Judge Susan Graber, the en banc court unanimously agreed with the panel and reversed the district court’s denial of a preliminary injunction. The court relied heavily on National Institute of Family & Life Advocates v. Becerra (NIFLA), 138 S. Ct. 2361 (2018), where the Supreme Court provided a framework for analyzing First Amendment challenges to government-compelled speech.

In the majority opinion, the court held that:

Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985) “provides the appropriate framework to analyze a First Amendment claim involving compelled commercial speech—even when the government requires health and safety warnings, rather than warnings to prevent the deception of consumers.” Slip Op. 14.

To pass scrutiny under Zauderer, compelled disclosure notice must be “(1) purely factual, (2) noncontroversial, and (3) not unjustified or unduly burdensome.” Id.

“Defendant has the burden,” including to prove “that the warning is neither unjustified nor unduly burdensome.” Id. at 15.

The court’s decision in CTIA–The Wireless Ass’n v. City of Berkeley, 854 F.3d 1105 (9th Cir. 2017), which had been vacated and remanded in light of NIFLA, had been correctly decided.

“Zauderer provides the appropriate framework to analyze a First Amendment claim involving compelled commercial speech—even when the government requires health and safety warnings, rather than warnings to prevent the deception of consumers.” Id. at 14.

The requirement that the warning cover 20% of the advertisement “is not justified when balanced against its likely burden on protected speech” because the record showed that “a smaller warning—half the size—would accomplish Defendant’s stated goals.” Id. at 15-16.

The court stressed that it did “not hold that a warning occupying 10% of product labels or advertisements necessarily is valid, nor … that a warning occupying more than 10% of product labels or advertisements necessarily is invalid.” Id. at 16-17.

Rather, the court held “only that, on this record, Defendant has not carried its burden to demonstrate that the Ordinance’s requirement is not ‘unjustified or unduly burdensome.’” Id.

Having found that Defendants could not show that the “Ordinance’s requirement is not ‘unjustified or unduly burdensome,’” the court opted not to “decide whether the warning here is factually accurate and noncontroversial.” Id. at 16-17.

Three Concurrences, Joined By Four Judges, Highlight Sharp Disagreement About How To Evaluate Compelled Commercial Speech After NIFLA.

Disagreement lurked behind the unanimous en banc decision. Three special concurrences, joined by four of the eleven judges, explained why the majority had erred even though it had reached the right result.

Judge Sandra Ikuta concurred in the judgment but dissented from “most of the reasoning” because she believed the “majority fails to follow [NIFLA’s] analytical framework and makes several crucial errors.” Slip op. 18.

Judge Ikuta argued that the court misapplied NIFLA by not first determining whether Zauderer applied (which she found it did not because the warning was not factual or uncontroversial and was unduly burdensome) and then striking down the ordinance under heightened scrutiny. Id. at 18, 24-29.

Judge Ikuta also argued that the majority should not have created “a First Amendment exception for government-compelled health and safety warnings,” because in her view NIFLA held only the “‘health and safety warnings long considered permissible’ would be excepted.” Id. at 25-26.

Judge Morgan Christen, joined by Chief Judge Sidney Thomas, concurred in part and concurred in the judgment.

Judges Christen and Thomas agreed “that Zauderer’s framework applies to the government-compelled speech at issue” and “that the district court’s decision must be reversed.” Id. at 29.

Judges Christen and Thomas would have held that San Francisco could not show that the speech it sought to compel was “purely factual”—because it was not literally accurate and could be misconstrued—rather than “jump[ing] straight to asking whether the proposed warning is ‘unjustified or unduly burdensome.’” Id. at 29-36.

Judges Christen and Thomas emphasized that “[w]hen the government takes the momentous step of mandating that its message be delivered by private parties, it is exceptionally important that the compelled speech be purely factual.” Id. at 36.

Judge Jacqueline Nguyen concurred in the judgment but “disagree[d] with the majority’s expansion of Zauderer’s rational basis review to commercial speech that is not false, deceptive, or misleading.” Id. at 38.

Judge Nguyen would have held that Zauderer’s rational-basis test applies only to deceptive or misleading speech, not all regulations requiring public health disclosures. Id. at 38-40.

EXTRANET

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